BY ABEBE WOLDEGIORGIS
It is unusual in the Ethiopian Bank industry to provide loans without collateral. Even some feasible projects fail to secure loans because of lack of access to finance. This is the major reason why the number of money borrowers from banks is insignificant.
There are 66 million people in Ethiopia who have bank accounts and deposited about 1.5 trillion Birr but the number of people who took loans from banks is negligible.
In the 2013 E. C. in the budget year, banks provided loans to their customers of less than one billion Birr. Most bank customers secured loans from banks in a repetitive way and the annual increment of the number of new loan takers is very small.
In addition, the chance of small and medium size businesses of getting loans from banks is very rare. The Oromia Cooperative Union Bank President Deribe Asfaw said that there is no culture of loan providing to medium and small scale businesses and farmers.
As a result, unlike other African countries in Ethiopia, the portion of the role of small and medium size enterprises in the economy is negligible.
By the 2020 the percentage of loan provided to the small and medium size enterprises is only 2 percent of the Gross Domestic Production. As compared to South Africa the loan provided to SME in the mentioned budget year is less than 14 percent and to that of Kenya it was less than 6 percent. The situation is directly related with the excessive money loan provided to the customers in the public sector and absence of interest to get loans on the part of SME.
As to Deribe, the absence of mutual trust between the financial institutions and the organizations which need loans also contributes to the low transaction. Hence, working to bring attitudinal change is essential. In this regard, the Oromia Cooperatives Union Bank is ready to play a pivotal role through providing loans without collateral.
To facilitate the loan provision the bank utilizes technology. The Oromia Cooperative Association Union Bank with the collaboration of Payment Finance Technology launched a loan scheme known as “Michu Digital loan” without collateral which is the first in Ethiopia.
The Oromia Cooperatives Union payment Financial Technology loan service artificial intelligence movable digital is a platform and creates an enabling environment to provide loans without collateral.
Based on the agreement reached between the two companies the bank enables digital loan service technology and the Oromia Cooperatives Associations Bank on its part utilizes its financial capacity to reach the most inaccessible segment of the society which organized themselves in a small scale enterprise.
The bank implements a loan provision schedule which targets Small and Medium Size businesses. It pursues the fundamental principle of loan provision and the service is provided only through a mobile banking system.
According to the Oromia Cooperatives Union Bank President Deribe, the working system is special and what differs from others is that the money transaction is conducted without physical contact only by mobile banking system. The loan provision service and payment system criterion enables to do the transaction within short minutes. Small and Medium Size enterprises can play a crucial role in the economy. Hence, it is good news that the new venture helps them to unleash their potential in full scale.
SMSs should be recognized and supported so that, they could get sufficient capital to play a crucial role in the economy by creating job opportunities for hundreds and utilizing local based raw materials as inputs.
Studies indicate that, SMSE are currently faced with challenges due to shortage of finance and unable to cover their day to day expenses.
The Oromia Cooperatives Union Bank intended to support the poor segment of the society that is why it introduced the digital apparatus which serves for providing loans without collateral. The scheme provides loans to individuals, farmers and small scale traders.
The Payment technology Private Limited Company Chief Executive Munir Duri on his part said that, his company’s cooperation with the Oromia Cooperative Associations Union Bank creates new opportunities to enterprises which suffer from shortage of finance without worrying about getting loan because of lack of property that can be provided for collateral.
The company with the support of technology provides loans to the enterprises. The micro loan targets the street vendors, small businesses and begins to provide loans up to 30 thousand birr and the money is required to be refunded within four months.
The highest rate of loan going to be provided to the small scale and medium traders is 150 thousand birr and must be refunded within one year. In addition to these, special loans also will be provided to workers at various levels. The digital loan service shows
The new types of creativity, performed in a speedy manner with no time and place limitations enable to prove the refunding capacity of the borrower and determine the refunding options through a data system. In its formative year the Oromia Cooperatives Union Bank expected to enhance the customers by 30 percent.
The loan service is ready to reach the most marginalized segment of the society residing in the rural part of the country. As to Deribe, the bank never hesitates that loaned money would be liquidated. Asked what would be the measure of the bank in case borrowers fail to refund the money and leave their residential areas Deribe said that, the poor has no property such as residential house to use as collateral hence if the bank put collateral as criterion to provide loan the poor will never get access to financial services hence, by looking the matter optimistically and courageously involving in the venture is the only solution and the risk that might be occur will be managed.
He further said that in the bank business there is opportunity and risk and when the bank begins such business initially the cost benefit analysis will be conducted. There are various mechanisms to detect the indebted people who left their residential houses and the issuing of national identification cards can serve as a tool in this regard. In addition, trusting the poor is vital in alleviating poverty.
Asked whether the underdevelopment of the telecom infrastructure affected the business Deribe said that, currently it might be the problem but through time when the infrastructure is expanded the problem will be resolved. The technology also serves as a bridge to market gaps.
The payment financial technology was established in the year 2010 and by the year 20 13 it was able to simplify the market and develop durable technology distribution infrastructure enabling it to provide financial and non-financial services to customers. The technology focuses on e-commerce, logistics, payment distribution services, digital agricultural solutions and loan services.
The Oromia Cooperative Union Bank was established in October 19 1997 EC registered and became operational in February 1997 EC and 67 percent of the shareholders of the bank are members of the cooperative association’s farmers and small scale traders.
As mentioned the Ethiopian business is occupied by the government and the well to do class in the private sector. The remaining middle and the downtrodden class are engaged in the business to some subsistence level. The amount of money they transact is negligible. As a result, they fail to provide property which can serve as collateral to get loans from banks which intern leaves them in the disadvantageous position. Hence, the initiative taken by the Oromia Cooperative Union Bank to provide loans to the medium and small scale enterprises to provide loans without collateral will bring the glimpse of hope to create job opportunities and support poverty reduction schemes.
The February 8/2022